The archived blog of the Project On Government Oversight (POGO).

Jan 03, 2012

NYT Misses Elephant in the Room: Defense Service Contractors

By DANA LIEBELSON

This week, Defense Secretary Leon Panetta is poised to deliver his recommendations on at least $450 billion in defense cuts over the next ten years, according to The New York Times. Although the paper outlines several important potential cuts (in a nifty multimedia chart!)-it fails to include on its list of targets something that should have a huge bull’s eye: Department of Defense (DoD) service contractors.

According to the Pentagon’s own analysis of personnel costs dated January 2011, service contractors are “increasingly unaffordable.” That same analysis goes on to say that “the savings are here” and growth in spending on service contractors “has been unchallenged.” The chart shows that former Defense Secretary Robert Gates’ short-lived insourcing initiative only touched a tiny speck of the hundreds of billions the DoD spends each year on service contracting.

POGO found in its “Spending Less, Spending Smarter” report, that reducing spending on DoD service contractors by 15 percent would save about $300 billion over ten years. In FY2010 alone, DoD service contractors cost taxpayers more than $200 billion—$50 billion more than the cost of all uniformed personnel. Also, POGO’s analysis of 35 comparable job occupations fulfilled by federal employees and by government contractors found that, on average, contractors cost significantly more than federal workers.

Talk about an elephant in the room.

A chart from a Pentagon analysis of the defense workforce.

The New York Times article focuses on other cuts that are also important. For example, the DoD could drastically reform Tricare, a politically sensitive move. According to The Times multimedia options, this plan would cut between $244 and $295 billion.

However, if Panetta followed POGO’s plan, the DoD would only have to cut $60 billion from Tricare, which would mostly affect former service personnel between the ages of 38 and 65 with other health insurance options available.

The Times also points to the Pentagon’s “aging strategic nuclear forces,” the F-35 Joint Strike Fighter program and aircraft carriers and Navy air wings as possible areas of budget reductions—all POGO-approved ideas.

POGO has recommended a variety of nuclear program savings and has suggested that the B and C models of the problematic F-35 program—which POGO dubbed #JSFail in a recent investigation—be replaced. POGO has also recommended that aircraft carriers be cut from 11 to 10 and Navy Wings from 10 to 9.

For now, we can only wait for the hyperbolic Mr. Panetta to make his recommendations, which come as part of the president’s annual budget submission to Congress. These recommendations won’t be set in stone—Congress still has an opportunity to hash them out.

Comments

Edited version.
First of all, I'm not a rocket scientist, but when I was stationed in Germany in the last of the 60s, some one had the brilliant idea of trying to pay the military as corporations, government pay their civilian population and after many years of study, they came to the conclusion that no way they could pay the military as well as civilians. Of course, when some one opens a Pandora's box, it not only opens it but some people see opportunity knocking and when opportunity knocks, the corrupt answer the door.
I recall well how during the Iraqi war, the military were real mad at those Halliburton, Black Water contractors that didn't have to be in the middle of the action were paid 10, 15 times more than those that were putting the dead bodies, but since when this nation of ours is for, by and for the people? Never, we have never been, are not and will never be for Joe Q. Public. Now, the democrats with Mr. Bush the third leading the charge, saw that they could also rip off uncle Sam as well as republicans and the rest, as they say, is history. The people can huff, puff, and blow hard, but things will never change, at least not for the 99%, but for the 1%. Nobody can't, nobody will change that, maybe with the second coming of Jesus, but by then we will be lower in status than the Titanic. It will be better for the 99% to pray for the second coming of Jesus than expecting things to change, until then I don't see the light at the end of the tunnel.

Jackson,
I couldn't agree more -- it is essential to have fully-loaded comparisons of the total costs of federal & contractor employees. Unfortunately, the FAIR Act, Service Contract Inventories, Pay Agent Reports, and government, union, & private sector salary data & comparisons fall short of what is needed. We presented both sides of the debate, pointed to many of the ongoing criticisms of the A-76 process, highlighted studies showing savings when contractors performed work & savings realized when the work was performed by federal employees. We highlighted the CWC's findings related to the cost of services in contingency operations. POGO's report was fair in regard to calling on policymakers to create a better system that doesn't involve blanket calls or ratios to in-source or outsource, or a statement that private sector salaries are lower than public sector salaries and therefore we should outsource all work. Please contact me at POGO and we'll talk about these issues and the solutions. I certainly don't think that we have the final answers and would love to learn more from others who have an interest in and knowledge about the issue.

DoD and Congress use the rule of thumb that one deployed soldier in Afgh. costs, in round numbers, $1 million for one year. (If u delve into granular detail, this does seem right.) How would you like to pay that much for uniformed military to do truck driving, plumbing, food prep, or clerical jobs? Defense civilians (US nationals) cost on the order of .4 million serving abroad, and that does not begin to figure in the overhead. And, regardless of where the government employees are assumed to be for cost-comparison studies, your costs for them does not begin to capture all of the relevant overhead. If you back to the seemingly long-ago wars over A-76, that is plain.

Mr. Amey,
You prove once again that you know what of you speak. Your owning up to some o the inherent methodological flaws and shortcomings is a step in the right direction. Since you know the data and analytical limitations better than anyone, you ought to keep the study from being cited, with implied 100 percent goodness, by your colleagues as some kind of proof that contractors cost more. It would not be hard, with hard-nosed analytics, to come up with a fully (and truly) loaded rate for Federal bodies. CSIS's crew could probably help you. But you gotta add to the federal cost the true hours in the work year (that is, deduct all the BS hours that contractors could not charge, e.g., for training), the richness of the pension and other real-dollar benefits, and the unparalleled security.

DoD spending, acquisition, and contracting are, to put it lightly, a mess. There are many ongoing debates about who is really at fault -- the government, contractors, or both. As one of the authors of POGO's Bad Business study, I have to point out that we cited numerous limitations that we experienced in putting together the report. We understand that we utilized GSA Schedule ceiling prices, but those are the only rates that are publicly available. Additionally, we didn't add in overhead on the government side. To balance that, we didn't include the overhead that the government incurs to award, administer, and oversee contracts, or the government's overhead for contractors working at federal facilities. We excluded contractor site billing rates, as they were, on average, 15 percent higher than the rates they charge the government for work at government sites.

While there are numerous studies comparing salaries of public and private sector employees, we have drawn attention to the fact that this is really a cost to the government issue that should be considered prior to in-sourcing or outsourcing any work. Without filling in the gaps, including productivity issues, and making valid comparisons, the government is prone to wasting taxpayer dollars.

Your point has some merit, but it is limited. Contractor costs are embedded in many of the more recognizable cost elements that Panetta should consider. We should have little confidence that he will do the right thing because he is a blind apologist for the wastrels. He was like that at the CIA. He knows damn well what can be cut, and easily, but he won't do it because, like his boss, he is a plain old pol.
As for the study you cite, it does not meet standards of some other POGO work, and the comparisons are so flawed by under-costing the pertinent Federal personnel costs and using contractor list prices that are, in fact, hardly ever used for real. It also does not deal with Federal employee productivity, which, waste aside, is a 900 pound elephant in the room that no one would even allude to with the cute photo you used. Rather than apples-to-apples comparisons, the study serves up guava-to-heritage tomato comparisons.